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My Way
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My Way I told you then, I'm telling you now and I'll tell you in the future, it doesn't work I read two insightful articles recently (I don’t know if they intended to be insightful but they provide food for thought) that tell a whole lot about the current state of the outlet industry and it isn't good news. The first reported on the conversion of several outlet centers to “mixed-use” projects (in other words, the outlet concept was failing and the owner was willing to do anything to keep the space leased) and the other article reported the number of outlet centers in the U.S. is now 225, down from 329 in 1996, and only three new ones have opened nationwide in the past two years, down from a high of 43 openings in 1989, according to Value Retail News (ICSC). The article promoted the change to mixed-use was a brilliant idea and to look at it as necessary to the center's survival. Outlet centers, which in theory, offer lower prices than conventional retailers, face increased competition from discounters such as Wal*Mart and Target in addition to department stores becoming more competitive. Besides not offering real value, the concept is overbuilt, is in trouble and is a "no growth" industry. During the heyday of “outletting,” I complained that the concept was being overbuilt (I told you then, I'm telling you now and I'll tell you in the future...it doesn't work) and most of the merchants offered little value to the consumer. However, my thoughts fell on deaf ears, as the industry was “hot,” developers were building and retailers were signing leases (they built 'em, so they leased; no logical reason). When the outlet industry was “born,” its main stock in trade was overruns and “seconds” and this type of merchandise was sold to the public at substantial discounts. In 1978, I did a Manhattan Shirt deal in Kansas that in 4,000 sq.ft. did over $1.2 million a year, and that’s 1978 money. Today, that number is almost impossible to reach even with inflated dollars and the reason is simple; few outlet tenants offer real value to the consumer and the consumer is not dumb, they understand value, which is why Wal*Mart is "god." This rapid expansion made absolutely no sense but it took a decade for the truth to finally prevail and I think the same will be true for “lifestyle” centers, which are now the “vanilla” of the day. Besides becoming overbuilt, "every" developer is now adding a lifestyle segment to their center and when all these projects start to come aboard in a year or two, the industry will be overbuilt and follow the outlet industry as a "no growth" industry. Over the last 20 years, power, outlet, offprice and auto centers, in addition to furniture marts, antique malls, lifestyle, home centers and more “concept” centers opened than I can remember. The developers of these concepts sold a bill of goods to the retailer, who bought it and then failed in execution. Linens ‘N Things started its life as an outlet retailer, and 15 years ago Bed, Bath & Beyond wanted to grow up to be an outlet merchant; today, they both want conventional, mall or lifestyle centers. Bookmarket, the industry's largest “outlet” bookchain, is now pushing its expansion into second-generation malls and lifestyle projects. BUT just what is REALLY the hottest type of retailing today? Supermarket-oriented strips. We’ve come a long way baby, but it’s really been a round trip. We’re back to where we started; a lot more sophisticated, a lot more expensive and older, but right back where we started from. The conventional strip center works and if it ain't broke, why fix it. Now don't get me wrong, I believe in new concepts and "exciting" architectural design of centers, but I believe most can be included in a more traditional center. Outlet/offprice retailers can and do coexist with traditional retailers. We don't have to make a center into an amusement park, but we can add entertainment aspects to the project. It's not "either/or" if the center is large enough; you can have a health club, movie theater and bowling happily being part of your tenant mix. In fact, if you make the center's GLA expansive enough, every type of retailing will prosper because the center's trading market has been expanded enough to cater to all needs. On a different note, as I said in the last MY WAY, the summer months are slow for our brokerage division, which has given me some time to reflect instead of just reacting. While business is good and all the ICSC events seem to still be attracting excellent crowds, I decided I have to expand our marketing approach, so (TKO) will, over the next six months or so, be exhibiting at the Home Builders Show (these are the guys that buy 300 acres, build residential in the back and then try and do some commercial in the front). They understand residential but seem to hate or misunderstand commercial, therefore I’m hoping I can help 'em lease. We’re also going to exhibit at the Realtors Show (some of my best friends are brokers) and an offprice event where they sell merchandise to RETAILERS (hopefully these retailers not only want to buy merchandise but expand to new locations) who are “value” oriented strip tenants. FYI, exhibiting at these shows make the ICSC events look cheap. The reasoning behind these moves is that while business has been, and is, good, for the last five years - being the paranoid type - I figure there will be a slowdown in the next year or so and rule number one in brokerage is you ALWAYS have to be looking for new business or there’s no income the next year. I figure these shows will provide “fresh meat,” and I won’t be going to a show where everyone knows each other’s name, so I'll have to work harder, but it should be interesting. I'll keep you abreast on what's happening. Ann, in “HerWay” talked a little about the recent Supreme Court ruling on eminent domain, but I have to add my two cents, that since the ruling, which has only been weeks, I’ve already seen three abuses of it by local government regarding centers. This law has to be changed, whether by the local or national government. Normally I’m pro “activists” judges, BUT this is a ruling that has both conservatives and liberals on the same side; the law is wrong and unfair. Of course, in the three cases I saw, a developer worked with the town to “take” existing centers, so some in our industry will benefit but it doesn’t matter, it's just wrong and has to be changed. On a different topic, it’s been a long time since I’ve commented on the Internet since it’s now a normal part of our lives and therefore it would be a little like commenting on your need for a fax machine. The Net is probably more important to our business life than the fax and in the same league as the phone. Anyway, besides MapQuest making my driving easier, emails a great way to deliver information or leave brief messages and the various e-mail forums being a fast and cheap way to market property for lease or sale, the two latest tools I’ve been using are Google’s satellite mapping service (http://maps.google.com) where you can get an older satellite view of most properties. (Usually the pictures are one to three years old but it’s a great starting point.) I’m also starting to use Co-star’s “Free Building LookUp” ( http://www.costar.com) Not as good of a tool as Google, but still helpful. Physically visiting a site, driving the market and analyzing the demographics is as important today as ever, but there’s a lot of great tools available to make decision making better.
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